20160304-招商证券_香港_-江南集团-01366.HK-Beneficiary_of_China_s_rising_power_cable_investment_12页_1mb_1mb

Summary of Jiangnan Group (1366 HK) Report

Core Content

Jiangnan Group (1366 HK) is a leading wire and cable supplier in China, with a strong presence in the EHV (Extra High Voltage) and UHV (Ultra High Voltage) segments. The company has a wide range of products, including over 10,000 types of wires and cables, and has established solid relationships with major clients such as State Grid Corporation of China (SGCC), China Southern Power Grid (CSG), PetroChina, and Shenzhen Metro. Its products are used in various sectors, including power transmission, infrastructure, and industrial applications.

Main Points

Market Position

• Jiangnan is one of the largest wire and cable manufacturers in China.
• It holds a market share of approximately 2.5% in 2014.
• It is the only Chinese electricity cable enterprise with an overseas manufacturing base.

Revenue and Profit

• Revenue growth in FY14 was 26% YoY, and in 1H15 it was 17% YoY.
• Net profit for FY14 was RMB626 mn, up 24.3% YoY, and in 1H15 it was RMB288 mn, up 16.3% YoY.
• Consensus estimates for FY15E and FY16E net profit growth are 17% and 20% YoY, respectively.

Valuation

• Current P/E ratio is 4.8x for FY15E and 4.0x for FY16E.
• This represents a nearly 50% discount compared to its peers.
• Dividend yield is 5.2%, with a dividend payout ratio of 25% in FY14.

Growth Drivers

• Industry Consolidation: The Chinese wire and cable industry is highly fragmented, and the NDRC's policy to stop granting production permits has led to a reduction in suppliers. Jiangnan is expected to benefit from this trend by gaining more market share.
• Renewable Energy Demand: The growing need for renewable energy and improved transmission efficiency is driving demand for EHV and UHV cables.
• Overseas Market Expansion: Jiangnan is expanding its presence in markets like South Africa, Singapore, and other developing countries under the "One Belt, One Road" initiative. Its overseas gross margin is higher than domestic sales, at 17.8%.
• Railway Development: The rapid development of high-speed and urban railway systems is boosting demand for wires and cables for electrical equipment.

Key Information

Financial Highlights

• Revenue: RMB5,356 mn (2012), RMB6,477 mn (2013), RMB8,155 mn (2014), RMB3,905 mn (1H15)
• Net Profit: RMB376 mn (2012), RMB504 mn (2013), RMB626 mn (2014), RMB288 mn (1H15)
• EPS: RMB0.164 (2012), RMB0.205 (2013), RMB0.247 (2014), RMB0.096 (1H15)
• ROE: 40.0% (2012), 24.6% (2013), 23.6% (2014), N/A (1H15)
• P/E Ratio: 6.4x (2012), 5.1x (2013), 4.2x (2014), 5.5x (1H15)
• P/B Ratio: 1.3x (2012), 1.1x (2013), 0.8x (2014), 0.8x (1H15)
• Dividend Yield: 5.6% (Historical), 5.2% (FY15E)
• Market Cap: HK$4,772 mn
• Avg. Daily Volume: 15.56 mn
• 52-Week Range: HK$0.96–HK$2.65
• Shareholding Structure:
  • Chu Hui: 34.77%
  • Pan Lanfen: 10.98%
  • Value Partners Group Limited: 7.52%
  • Free Float: 57.89%

Product Portfolio

• Power Cables (69% of sales): Used in power transmission and distribution systems.
• Wires & Cables for Electrical Equipment (19% of sales): Applied in property, home appliances, and equipment.
• Bare Wires (13% of sales): Used in overhead power lines.
• Special Cables: Include rubber cables used in mining, wind power, and other specialized applications.

Key Customers

• Energy Sector: SGCC, CSG, PetroChina, Sinopec, and others.
• Industrial Sector: Includes companies like China Petroleum, Shenzhen Metro, and Shanghai Baosteel.
• Infrastructure Sector: Involves projects like the National Olympic Sports Centre, Beijing Capital International Airport, and high-speed rail lines.

Risks and Challenges

• Working Capital Requirements: High working capital needs and long receivable turnover days (117/113 days in FY13/14) due to extended credit terms for SOEs.
• M&A Risks: While M&A is expected to enhance product mix and growth, it also carries financial risks.
• Slower EHV Upgrades: Potential delays in EHV upgrades by grid companies due to financial constraints.

Figures and Trends

• Figure 1: Revenue breakdown by product categories.
• Figure 2: Gross margin by product type.
• Figure 3: COGS breakdown.
• Figure 4: Accumulative length of UHV wires.
• Figure 5: Investment in urban rail construction during the 12th Five-Year Plan.
• Figure 6: One-year forward P/E.
• Figure 7: Key products: power cable, bare wire, optical cable, special cable.
• Figure 8: Sales volume by products.
• Figure 9: Revenue by products.
• Figure 10: Gross margin comparison.
• Figure 11: Net profit margin comparison.
• Figure 12: Peers comparison.
• Figure 13: Revenue and COGS trends.
• Figure 14: Revenue and COGS breakdown.
• Figure 15: Accumulative length of UHV wires.
• Figure 16: Investment in urban rail construction during the 12th Five-Year Plan.
• Figure 17: Revenue and COGS trends.
• Figure 18: Investment in high-speed railway during the 12th Five-Year Plan.
• Figure 19: Investment in urban rail construction during the 12th Five-Year Plan.
• Figure 20: One-year forward P/E.
• Figure 21: Gross margin comparison.
• Figure 22: Net profit margin comparison.
• Figure 23: Peers comparison.

Conclusion

Jiangnan Group is well-positioned to benefit from China's infrastructure development, renewable energy growth, and industry consolidation. Despite the challenges of high working capital requirements and potential delays in EHV upgrades, the company's strong customer relationships and diverse product portfolio support its long-term growth prospects. Its current valuation appears undemanding, offering a discount to peers, which may present an opportunity for investors.